TRAIN Package 1A: From the poor to the rich

Government’s continued implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) means that TRAIN’s taxes will keep raising prices next year and make inflation higher than it should be.

Read: TRAIN still inflationary with lifting of fuel excise suspension

TRAIN still inflationary with lifting of fuel excise suspension

Research group IBON said that government’s continued implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) means that TRAIN’s taxes will keep raising prices next year and make inflation higher than it should be.

The group said that lifting the fuel excise tax suspension shows the Duterte administration’s insincerity and insensitivity in addressing the inflationary impact of the tax reform program, particularly on poor Filipino households.

The administration’s interagency Development Budget Coordination Committee (DBCC) recently announced its plan to recommend that the second tranche of fuel excise tax be implemented, backpedaling on its previous suspension proposal.

The DBCC cited the lowering of Dubai crude oil prices and consideration of possible foregone revenues as reasons for its latest recommendation.

IBON however said that not going through with the suspension means new inflationary pressure next year from the second round of oil excise taxes in January 2019 on top of the now built-in additional prices from the first round in January 2018.

The liquid petroleum gas (LPG) excise tax of Php1.00 per kilogram (kg) in 2018 increases to Php2.00/kg in 2019, and Php3.00/kg in 2020. Diesel excise tax of Php2.50/liter in 2018 increases to Php4.50/liter in 2019, and Php6.00/liter in 2020.

Kerosene excise tax of Php3.00/liter in 2018 increases to Php4.00/liter in 2019 and Php5.00/liter in 2020.

The gasoline excise tax meanwhile is set to increase from Php7.00/liter in 2018 to Php9.00/liter in 2019 and Php10.00/liter in 2020.

IBON said that another fuel excise tax hike further increases costs of production. This will create a domino effect that will sustain the high prices of goods and services that many Filipinos, especially the poor, suffered this past year.

IBON estimates that the poorest 60 million Filipinos have already endured real income losses of anywhere between Php2,500 to Php6,800 due to worsening inflation since the onset of 2018.

The group added that it is premature to think that oil prices are going to stay low or that the peso will not continue to depreciate.

Oil prices remain volatile and could still increase next year with US sanctions on Iran gaining traction, possible Organization of Petroleum Exporting Countries (OPEC) production cuts, and untoward geopolitical events.

IBON insisted that the administration can do much to moderate inflation by suspending the inflationary taxes of TRAIN package 1.

IBON said that government should stop imposing higher consumption taxes such as the fuel excise which burdens the majority of poor Filipinos who can ill afford this amid low wages and growing joblessness. 

 

Instead, the government should improve revenue collection by cracking down on tax evaders and corruption in the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC). 

 

It should also build a tax system that raises revenues more from higher income, wealth and property taxes on the rich.#

Rice tariffication will displace rice farmers, worsen food insecurity–IBON

Rice tariffication and uncontrolled rice imports will displace rice farmers and worsen food insecurity without solving the problem of expensive rice, research group IBON said.

The government is using high inflation to justify rice sector liberalization according to long-standing demands of the World Trade Organization (WTO) and big foreign agricultural exporters.

Domestic agriculture should be strengthened with ample government support instead of being prematurely opened up to cheap foreign government-subsidized imports from abroad, said IBON.

Senate Bill 1998 or the Rice Tariffication Bill, which was approved by the Philippine Senate on third and final reading recently, is currently undergoing bicameral deliberation.

Government said that this will protect the rice industry from volatile prices, and consumers from rising inflation.

The measure is also supposed to earn Php10 billion annually which will be used to fund development of the local rice industry.

IBON however stressed that uncontrolled rice imports will drive rice farmers into worse poverty.

If the Philippines imports two million metric tons of palay, for instance, some 500,000 of around 2.4 million rice farmers will be adversely affected.

Even the government’s own Philippine Institute for Development Studies (PIDS) projects a 29 percent decline in rice farmers’ incomes from a Php4-decrease in palay farm gate prices when rice tariffication is implemented.

As it is, farmers’ average monthly income of Php6,000 at the Php21 farmgate price is already far short even of the government’s understated Php9,064 average poverty threshold for a family of five.

It is also not even one-fourth (23 percent) of IBON’s estimated monthly family living wage (FLW) of Php26,026 for a family of five as of October 2018.

Filipino rice farmers are unproductive and domestically-produced rice is unnecessarily expensive because of long-standing government neglect of the agriculture sector.

No more than five percent of the national budget has been given to agriculture over the last two decades.

The Duterte administration does not correct this and, for instance, the Php49.8 billion 2019 Department of Agriculture (DA) budget it submitted to Congress in July is just 1.3 percent of the national budget and even Php862 million less that its cash-based equivalent of Php50.7 billion this year.

The hyped Php10 billion (US$190 million at current exchange rates) rice development fund of the Rice Tariffication Bill is too little and too late, said IBON.

This compares unfavorably to rice industry support given by other rice producers including some countries the Philippines imports rice from — Vietnam (US$400 million), United States (US$619 million annually), Thailand (US$2.2-4.4 billion), India (US$12 billion), Japan (US$16 billion), and China (US$12-37 billion).

IBON also pointed out that there is no guarantee that retail rice prices will be lower in the long run with unhampered importation.

Relying on rice imports makes the country vulnerable to higher world market prices as well as to rice production and export decisions of other countries.

In 2008, for instance, IBON recalled bow Vietnam, India and Pakistan restricted their rice exports amid rising global rice prices.

Thailand also raised the idea of creating a global rice cartel similar to that for oil exporting countries.

Government’s neoliberal prioritization of food imports and production of crops for export should be reversed, IBON said.

The Philippine government should instead strengthen the local rice industry. This begins with free land distribution to all willing tillers, followed by giving substantial support for rice producers, and taking control of the market to ensure reasonable prices for rice and other agricultural produce. #

 

Beware of onerous China ODA – IBON

In its eagerness to raise billions of pesos in funds for its hyped infrastructure program, the Duterte administration is brokering questionable deals with China that could threaten Philippine sovereignty, research group IBON warned.

IBON said that agreements between both governments include China’s official development assistance (ODA) loans for Build, Build, Build infrastructure project like the Php12.2 billion New Centennial Water Source-Kaliwa Dam, which will be 85 percent funded by China.

The Duterte administration needs Php8.4 trillion for its whole term to bankroll Build, Build, Build, said the group, and is apparently counting on China to provide a substantial amount of this.

IBON said the size and value of China investments, loans and interest is not yet as extensive as those of other countries like Japan and the US, or financial institutions like the International Monetary Fund (IMF) and World Bank (WB).

However, Filipinos should be particularly wary of the onerous conditions China imposes, which could result in the Philippines virtually giving up its sovereignty, said the group.

For instance, China ODA has been known to stipulate the collaterization of resources and state assets should a country default on its loan payments, noted the group.

The Sri Lankan government, for instance, was forced to lease its strategic Hambantota Port for 99 years to a Chinese company when it was unable to pay back its debt to China.

IBON also noted that another lopsided condition terms of reference in China loans that require the agreement as well as the rights and obligations of both parties be put beyond the scope of Philippine laws and transparency in the public domain. China apparently prefers disputes to be settled at the China International Economic and Trade Arbitration Commission (CIETAC).

These conditions are included in the Chico River Pump Irrigation loan agreement.

Additionally, IBON questioned the provision in the loan agreement stating that it “shall be governed by and construed in accordance with the laws of China.”

The group expressed concern that this could mean that Chinese law will supersede Philippine law in case there is a conflict between the two.

Also of concern is the Duterte administration’s willingness to give up its territorial resources in the South China Sea to secure China investments and loans, the group said.

In line with this is the administration’s efforts to be a part of China’s Belt and Road Initiative (BRI), which supposedly gives access to coveted infrastructure investments.

In exchange, the Philippines has been easing the way for China’s interests in the disputed waters.

IBON said that instead of prioritizing the attraction of one-sided foreign investments and loans for its infrastructure program, the government should put national interest and public welfare first over local and foreign big business interests.

To be beneficial to the country, foreign investments and loans that are being considered should be planned in accordance with the genuine development of domestic agriculture and industries, with close monitoring and regulation by the government. #

Php18,855 already lost–Jeepney drivers among biggest losers from TRAIN’s oil taxes

Research group IBON said that jeepney drivers and their families have suffered huge income losses from rising pump prices on top of facing rising prices of basic goods and services.

The initial and impending fare hikes give immediate relief but only temporarily.

Fare hikes only worsen the burden on commuters and the government needs to take a broader view of the situation including taking both short and longer-term measures.

Jeepney drivers have lost a total of Php18,855 from start of the year until September because of the oil excise tax under the first package of TRAIN and rising global oil prices.

TRAIN is to blame for around Php13,104 of this amount, said IBON.

The estimated cumulative Php18,855 loss in the first nine months means an average loss in income of Php2,095 monthly, IBON explained.

Jeepney drivers and operators petitioned for a Php2 fare increase to help the sector cope with the rising prices of goods and services and the impact of TRAIN.

IBON however said that the fare hikes are still not enough to compensate for drivers’ income losses since the start of the year.

Driver’s incomes fell drastically in the first six months of the year.

The provisional Php1 jeepney fare hike in July compensated for pump price increases in July and August but was not enough in September when their incomes again fell as pump prices rose.

Even the full Php2 jeepney fare hike to be implemented this November, which includes the July Php1 fare increase, will not be enough to restore their earnings to pre-TRAIN levels.

IBON estimated the income losses of drivers assuming 200 passenger trips and 20 liters of diesel consumed daily, prevailing fares, and incorporating expenses for maintenance and other miscellaneous expenses.

Monthly incomes from January to September were compared to that in December 2017 as the baseline income.

IBON pointed out that the government’s narrow focus on fare hikes is pitting jeepney drivers against the riding public.

Both already bear the brunt of relentless price increases not just of oil but also of other commodity items including food, said the group.

The interest of both drivers and commuters is better served by giving greater attention to the drivers of inflation. “Suspending TRAIN’s oil excise taxes immediately starting with those implemented in January 2018 will give immediate relief to jeepney drivers and consumers,” IBON executive director Sonny Africa said.

“The additional oil excise taxes in January 2019 should also be suspended so as not to add to already considerable inflationary pressures,” he added.

“Further fare hikes can be prevented and a rollback may even be possible if oil firms’ overpricing is reined in,” said Africa.

 

“The long-term solution should include fuller and more responsible regulation of the oil industry,” he concluded. #

Suspend rate hike, scrap concession agreement with water firms, govt told

The Water for the People Network (WPN) said that government should not accede to the ruling of an international arbitral court granting the Maynilad Water Systems, Inc. petition to collect its corporate income tax (CIT) from consumers. 

The water rights group agreed that any impending water rate increase amid the ongoing dispute on pass-on CIT should be deferred.

The group likewise urged the scrapping of the concession agreement (CA), which it said allows onerous grounds for price hikes.

The Singaporean Supreme Court finalized an International Chamber of Commerce (ICC) arbitration decision that Maynilad may recover its CIT through pass-on charges.

Maynilad has demanded that the Philippine government pay Php3.4 billion in indemnification for non-recovery of its CIT for the period March 11, 2015 to August 31, 2016.

This is after the Metropolitan Waterworks and Sewerage System Regulatory Office (MWSS-RO) refused to honor an arbitral decision favoring Maynilad while that for Manila Water remained pending.

As per CA with the Philippine government, both Maynilad and Manila Water took to international arbitration in 2013 to contest the RO’s rejection of their petitioned rate increases for the rate rebasing period of 2013-2018.

The firms’ petitions included CIT recovery and other expenses unrelated to the delivery of water services.

For the period of 2018-2022, the MWSS Board has already approved the RO’s rate rebased tariffs, which again reportedly disallows CIT recovery. The MWSS-RO announced a staggered Php5.73 per cubic meter (cu. m.) rate increase for Maynilad and Php6.22/cu. m. for Manila Water.

These are lower than the firms’ petitioned rates, wich for Maynilad still included the CIT.

The WPN urged the MWSS Board in a letter to uphold the decision to prohibit CIT recovery because it is unjust to consumers.

“In the first place, it is very wrong to pass on the burden of paying the CIT to consumers,” said the group.

The concessionaires are technically public utilities providing a very basic need such as water, said WPN. Aside from mandating the periodic alteration of basic charges through rate rebasing, the CA ensures the concessionaires’ steady flow of revenue and profit-making with other increases based on inflation, an environmental charge, and value added tax, noted the group.

WPN supports the MWSS-RO plan to suspend the impending rate hike this year should Maynilad insist on collecting indemnification from the government.

“The amount being demanded by Maynilad alone could reach Php40 billion, tantamount to an increase of about Php5.00/cu. m. on current average tariffs. Any rate hike today is also insensitive due to the soaring prices of goods and services,” said the group.

Inflation has risen to 6.7 percent in September from 6.4 percent in August.

Aside from pushing for the prohibition of the CIT and rate hike suspension, WPN stressed that strategically, government should review and repeal the CA altogether.

 

“It is the basis of the enrichment of private water firms at the expense of consumers. Government should instead ensure control over water resources to have these safe, accessible and affordable for the public,” WPN said. #

IBON — Php238 NCR wage hike doable without worsening inflation

As the Metro Manila regional wage board deliberates a minimum wage hike for later this month, research group IBON said that a much-needed Php238 minimum wage increase is possible and need not be inflationary.

Millions of Filipino workers including in the National Capital Region (NCR) are burdened by high prices of goods and services.

The group said that the wage hike is possible and will not be inflationary if only companies are willing to take a small cut in their profits.

The government can meanwhile support smaller establishments to be able to afford the wage increase.

The purchasing power of poor and middle income households in NCR is eroding due to high inflation this year on top of the accumulated erosion from inflation in previous years.

At the national level, IBON estimates that the country’s poorest 14 million households have already lost anywhere from Php1,800 to Php4,725 cumulatively from January to September this year because of inflation.

The erosion in purchasing power in NCR is likely to be even greater. Monthly inflation in the first nine months of the year averages 5.0 percent nationwide but is higher at 5.6% percent in NCR.

IBON said that NCR firms have more than enough profits to support a Php238 minimum wage hike.

The latest data from the Philippine Statistics Authority’s (PSA) Annual Survey of Philippine Business and Industry (ASPBI) reports that NCR firms (with 20 and over employees) had combined profits of Php903 billion in 2015 while giving an average daily basic pay (ADBP) of Php530.

Using ADBP as a proxy for workers’ wages, raising the NCR minimum wage to Php750 and ensuring that workers get this will cost just Php132 billion which is just 14.6 percent of their profits.

In effect, NCR firms can pay the Php750 minimum wage and not have to pass this on to consumers as higher prices if they accept a slight cut in their profits.

Large corporations can readily give this substantial wage hike, said the group, but government should ensure assistance to micro, small and medium enterprises (MSMEs) so that they can afford this.

This can come in the form of tax breaks and incentives, cheap credit, subsidized fuel and utilities, and technology and marketing support, among others.

IBON added that the large wage hike is also justified by growing worker productivity.

Between 2009 and 2017, labor productivity in NCR grew by 35 percent from Php456,059 per worker to Php614,297.

However, that same period, the real value of the mandated minimum wage only increased by 11 percent and of ADBP by 16 percent, both measured in real terms at constant 2012 prices.

This implies that a large part of productivity gains go to employers as profits rather than to workers as higher wages.

IBON stressed that it is more urgent than ever in these times of economic crisis for the government to ensure the poorest working class Filipinos do not suffer needlessly and for those with the capacity to adjust, such as enterprises and the wealthy, to contribute to a more equitable economy. #

Inflation worsening: Gov’t should act fast as households’ incomes hemorrhage

Research group IBON said that inflation has not tapered off as government projected but has accelerated in September, highlighting government’s continued neglect in addressing rapidly rising prices of goods and services.

The group said that government continues to push failed neoliberal measures, while feigning concern for Filipino families struggling with a quickly falling purchasing power.

Sonny Africa, IBON executive director, said, “The purchasing power of Filipino families continues to fall because the Duterte administration is more concerned about managing the political backlash of rising prices than genuinely addressing the burden on the country’s poorest families.”

The Philippine Statistics Authority (PSA) reported that the headline inflation rate accelerated to 6.7 percent year-on-year in September 2018, higher than the 6.4 percent in August.

Africa said that this is also more than double the 3.0 percent in the same period last year and over five times the 1.3 percent in June 2016 at the start of the Duterte administration.

The inflation rate for the poorest 30 percent of families is however likely even higher and some 8.5 percent or more.

Africa said that inflation has not moderated because the government refuses to suspend implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) law or to implement price ceilings on basic necessities and prime commodities.

“Doing these would have sent a strong signal of the administration’s sincerity in addressing rising prices and would bring immediate relief for tens of millions of Filipinos,” stated Africa.

Instead, inflation has already eaten up thousands of pesos in the purchasing power of the incomes of the poorest households who are already under-consuming and have low standards of living as it is.

Africa estimated that each of the country’s poorest 30 percent of households have lost at least Php1,800 to Php2,916 already from the start of the year until September due to inflation.

These are households assumed to be earning some Php12,835 or less monthly.

Less poor and middle income households have also seen their purchasing power eroded.

The next 30 percent of households have lost Php3,418 to Php4,725 since the start of the year.

These are the households earning up to around Php21,119 monthly.

IBON estimates the erosion of purchasing power by deflating household incomes with reported monthly inflation rates.

The impact on the poorest households is also underestimated by the unavailability of inflation rates for low income groups.

The administration has been promoting measures such as importation of agriculture products and the public utility vehicle modernization as ways to mitigate high inflation.

But Africa said that these government measures are tepid because the economic managers only see the numbers as cold statistics and callously insist that the situation is manageable.

“The measures are weak, slow to take effect and oblivious to the worsening conditions of tens of millions of the poorest Filipinos,” said Africa.

Africa also said that lower inflation in the National Capital Region (NCR) may reflect how the government is just managing the political impact of inflation.

“Reported NCR inflation of only 6.3 percent could be because the administration diverted food supplies to NCR to lower food prices here but at the expense of the regions,” said Africa.

Food inflation in non-food producing NCR is conspicuously moderated. There was a just 0.6 percentage point increase in NCR versus 1.5 percentage point increase outside NCR, and 1.2 increase nationwide.

“The government should provide real relief to millions of poor Filipinos and middle class. This includes immediate price controls, stopping TRAIN’s consumption taxes, and a meaningful wage hike. Steps must also be taken to strengthen domestic agriculture and Filipino industry,” he said. #

 

Rate hike for Maynilad customers approved: Looming increase in water rates to burden consumers more

Amid soaring prices, the MWSS Board of Trustees has given the nod to higher water rates for Maynilad Water Systems Inc.

This and impending Manila Water Company, Inc. rate increases are bound to burden consumers anew, said water rights group Water for the People Network (WPN).

WPN urged the Metropolitan Waterworks and Sewerage System-Regulatory Office (MWSS-RO) to suspend the hike so as not to aggravate the difficulty of millions of low-income families in spending for their basic needs.

Approved by the MWSS Board is a Php5.73/cubic meter (cu. m.) hike for Maynilad as proposed by the MWSS-RO.

Meanwhile, the proposed increase for  Manila Water rates is Php6.26-Php6.55/cu. m.), which is set for deliberation within the month.

These figures are the supposed results of the rate rebasing process.

Every five years, government determines new water rates according to its review of the water companies’ petitioned rates vis a vis their past and projected expenses throughout the concession period.

Purportedly in consideration of consumers’ inflation woes, the MWSS-RO proposed for the increases to be collected in tranches, starting in October.

Maynilad’s approved rate hike schedule begins at a weighted average of Php0.90/ cu. m.

Manila Water’s rate hike begins at a weighted average of Php1.50.

WPN however said that regardless of the scheduled tranches, any addition to current expenses further constricts spending for poor households.

This includes millions of families whose incomes already fall way below the Php995 Family Living Wage (FLW) for a family of five. The daily minimum wage in the National Capital Region (NCR) totals Php512.

MWSS-RO computes that this October, the bills of households covered by Maynilad will increase by a net amount of Php6.53 for households consuming average 15 cu. m. per month and a net amount of Php13.68 for households consuming average 25 cu. m. per month.

For Manila Water customers consuming the same average volumes of water, rates increase by a net amount of Php9.68 and Php20.30, respectively.

Aside from the basic charge, however, WPN noted that the all-in tariff includes other fees such as the foreign currency differential adjustment (FCDA), environmental charge, and the value-added tax (VAT).

All-in tariffs are already at Php48.03/cu. m. for Maynilad and Php36.40/cu. m. for Manila Water as of July 2018.

The MWSS-RO claimed that Maynilad’s approved rate hike is much lower than the company’s Php11.00 petitioned increase, as is the RO’s recommended increase for Manila Water compared to the latter’s Php8.30 proposed hike.

This supposedly reflects the MWSS’ prohibition of the inclusion of the water firms’ corporate income tax and expenses unrelated to water services such as donations and recreation.

WPN however said that the agency’s refusal to publicly show the documents proving this–prior to the approval of the MWSS Board–underscores that the rate rebasing process lacks transparency and authentic public consultation.

During the 2013 rate rebasing process, public clamor versus the discovered inclusion of such items in water bills led to the MWSS-RO’s rejection of the water concessionaires’ petitioned rates.

Thus, per their concession agreement (CA) with the government, Maynilad and Manila Water subsequently appealed to international arbitration courts to demand compensation for lost revenues.

The courts have ruled twice in favor of Maynilad. Manila Water, which the international courts have turned down, has a pending case.

Consumers face more tariff increases in the future, WPN said, because of government’s privatization of water despite its being a public utility.

The group challenged the MWSS-RO to spare consumers of additional fees by stopping the hike.

WPN also stressed the urgency of scrapping the CA, reversing water privatization and instituting strong government regulation over all public utilities. #

295,000 jobs lost since Duterte assumed office, IBON maintains

Research group IBON stood by its estimates that close to 300,000 jobs were lost since the start of the Duterte administration after Employers’ Confederation of the Philippines (ECOP) honorary chair Sergio Ortiz-Luis said the group’s description of jobs lost is “deceiving”.

Ortiz-Luis reportedly said that it is deceiving to claim that the number of employed decreased by 300,000 just because there is data showing that employment dropped, even if there are new entrants to the labor market.

But Philippine Statistics Authority (PSA) data reports net employment generation, said IBON executive director Sonny Africa. “Net employment generation means employment created net of employment lost,” he explained.

“Ortiz-Luis’ argument about the number of entrants into the labor force is meanwhile puzzling because this is actually irrelevant in the PSA’s measurement of employed Filipinos,” Africa added.

“The number of employed reflects the number of jobs the economy generates, while the labor force measures those who have to compete with each other for whatever jobs the economy generates,” he explained.

PSA figures show that the number of employed fell from 40.954 million in July 2016 to 40.659 million July 2018.

IBON attributed the drop in the number of employed Filipinos to a huge 1.8 million reduction in agricultural employment over the same period.

Job losses and expensive food characterize the crisis in the agricultural sector, the group said.

IBON further said that job creation in the rest of the economy was not enough to compensate for the big agriculture job losses.

Gross job losses counted 2.2 million while gross job creation was only 1.9 million, hence the 295,000 drop in the number of employed.

The biggest job generation is in sectors that do not necessarily indicate a strong economy, IBON said, such as in the public sector and construction.

The group added that net job creation from July 2017 to July 2018 is feeble at 488,000 additional jobs compared to the 701,000 jobs created on average annually in the decade prior to the Duterte administration.

This failed to offset the 783,000 jobs lost in July 2017 from July 2016.

IBON said that Ortiz-Luis joins the administration’s economic managers in being dismissive of the jobs crisis becoming more severe under the Duterte administration.

“They have on the contrary hyped latest employment statistics as the highest among July rounds in the last 10 years, deflecting the issue of massive job losses,” the group said.

“It’s the economic managers that have been deceiving us, apparently Mr. Ortiz-Luis included,” Africa said. #